MarketWatch

NEW YORK – U.S. stocks closed lower on the day and week Friday, with the broad-based S&P 500 logging a third straight week of declines, after a wary session spent marking time ahead of next week’s Federal Reserve rates decision.

However, the energy sector was a gainer after two major deals suggested a round of consolidation among oil and gas producers may be in the cards.

The Dow Jones Industrial Average fell 30.02 points to 10,989.09 and the Nasdaq Composite Index dropped 1.52 point to 2,121.47.

The S&P 500 Index gave up 1.10 point to 1,244.50. The last three-week stretch of losses for the S&P 500 took place in October 2005.

For the week, the Dow lost 0.2 percent, the S&P 500 fell 0.6 percent, and the Nasdaq lost 0.4 percent of its strength.

Modest gains gave way on all three major averages during the final hour of trade, as investors once more were made wary by uncertainty about the Fed’s intentions and how much the economy is slowing, according to Peter Cardillo, chief market strategist at S.W. Bach.

“This is pretty typical for a Friday and for a week ahead of a Fed decision,” Cardillo said.

“There are new worries about just how hawkish the Fed is and whether it will over-tighten and whether we will have a hard landing or a soft landing scenario for the economy,” he said.

However, Larry Adam, managing director and chief investment strategist at Deutsche Bank Securities, noted that earlier in the day stocks were lifted by expectations that the second-quarter earnings season will prove solid.

The market could again focus on the growing likelihood of a strong earnings season, once the Fed decision is out of the way, according to S.W. Bach’s Cardillo.

The Federal Open Market Committee, the Fed’s interest-rate setting body, meets for two days next week. It is widely expected to raise its key short-term interest rate by a quarter percentage point to 5.25 percent.

On the broader market for equities, decliners outpaced advancers by 16 to 15 on the New York Stock Exchange, and by 15 to 14 on the Nasdaq.

By sector, energy and oil services gained on Friday’s two deals. Utilities, home builders and computer software stocks also rose.

Banks were one of the few sectors seeing any notable losses.

Volume was rather light at 1.407 billion on the Big Board, and 1.613 billion on the Nasdaq.

On the data front, orders for new U.S.-made durable goods fell a more-than-expected 0.3 percent in May. It marked the second decline in a row, with orders now down 3.5 percent since a peak in December.

The lightly regulated hedge-fund business came under scrutiny after The New York Times reported that Pequot, a $7 billion fund managed by Arthur Samberg, is being investigated by the Securities and Exchange Commission for possible insider trading. The probe has not resulted in any charges. Pequot, responding to the report, said all its trades have been proper and it has never received any insider information regarding impending mergers.

The U.S. dollar pared early gains that saw it rally to a two-month high against the euro and the Japanese yen. Expectations of higher U.S. interest rates, however, were putting a floor under declines. Higher U.S. rates raise the attractiveness of dollar-denominated assets. The euro late in the day was down 0.6 percent at $1.2509. Against the Japanese yen, the greenback rose 0.5 percent to 116.56.

Despite pressure from the rallying dollar, gold closed higher as analysts remained bullish about the long-term prospects of the yellow metal as a hedge against inflation and global political instability. Gold for August delivery rose $2.60 to close at $588 an ounce. On the week, it rose 1.1 percent.

On the bond market, long-term Treasury prices turned lower, sending yields higher ahead of the Fed’s rate move next week. The benchmark 10-year note closed down 4/32 at 99 7/32, with its yield ($TNX) at 5.228 percent.

Crude-oil futures hovered around the flat line. Traders continued to weigh a smaller-than-expected build in U.S. gasoline supplies in the latest week, developments in Iran, and next week’s Federal Reserve decision on interest rates. The benchmark August contract closed up 3 cents at $70.87 a barrel, while scoring a 1 percent weekly gain.

Separately, Deutsche Bank raised its oil-price estimates for the next two years and for the longer term, prompting increased price targets and earnings estimates for a number of heavyweight global oil companies and recommendation upgrades on two European majors.

It said that it now expects West Texas Intermediate oil prices to average $62 a barrel in 2007, from a previous estimate of $50 a barrel, and $55 a barrel in 2008, from a previous estimate of $45 a barrel. It also raised its long-term WTI forecast to $45 a barrel from $40 a barrel.

Among the U.S. companies mentioned in the note, Deutsche Bank continues to recommend “value stocks” Hess Corp., ConocoPhillips, Exxon Mobil Corp., Chevron Corp. as well as “combination winners” Occidental Petroleum and Marathon Oil Corp.

Shares in Anadarko Petroleum Corp. fell 7.2 percent to $44.90 after the company said it would spend $21.1 billion to acquire rivals Kerr-McGee Corp. and Western Gas Resources Inc. The merger, once approved, would create one of the world’s largest independent oil and gas producers.

The deal values Kerr-McGee at $16.4 billion, or $70.50 a share. Western Gas will be acquired for about $4.7 billion. Kerr-McGee’s stock shot up 36.4 percent to $68.61 while Western Gas shares soared 45.8 percent to $59.67.

In another deal for the oil sector, Energy Partners Ltd. and Stone Energy Corp. are to merge in a $2.2 billion deal. The combined entity will create one of the most active drillers of operated oil and gas wells on the Gulf of Mexico, the companies said.

Shares in Oracle Corp. rallied almost 4 percent to $14.89 after it reported late Thursday a 27 percent jump in its quarterly profit and strong revenue growth, buoyed by strong sales of new software licenses, particularly in its applications segment.

Safra Catz, the company’s president and chief financial officer, predicted profit excluding acquisition and other one-time items for the current quarter that met analysts’ average estimate. She forecast, however, a stronger-than-expected rise in revenue for the current period.

Alcoa Inc. finished up 19 cents at $30.18. The maker of aluminum products sealed a four-year labor contract with its United Steelworkers union, but it also said it expects to book a second-quarter charge of 4 cents a share on costs related to the ratification of the contract.

NYSE Group CEO John Thain said in an interview with the French newspaper La Tribune that the U.S. exchange has the resources to increase its Euronext offer if need be. The NYSE has agreed to buy the Euronext, while Deutsche Boerse is still pursuing its own deal with the Euronext. Thain told the newspaper that the NYSE has $650 million in cash and no debt. The stock threw off early losses to close up 1.2 percent at $61.45.

Qualcomm Inc. shares fell 4.2 percent to $39.55 after J.P. Morgan cut the wireless-technology provider to neutral from overweight. The broker cited a likely stalemate in contract negotiations with Nokia Corp. over the Finnish handset maker’s WCDMA license agreement.

Shares of Six Flags Inc. lost nearly 26 percent after the theme-park company said that it was looking to shed six properties as part of its initiative to sell off non-core assets. Six Flags has been looking to reorganize itself since December, when Chairman Daniel Snyder forced out management at the company. Former ESPN executive Mark Shapiro took the helm as chief executive at the time.

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(c) 2006, MarketWatch.com Inc.

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AP-NY-06-23-06 1722EDT